Jewish World Review April 14, 1999 /28 Nissan, 5759
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Most of them will manage to get their returns in the mail by midnight Thursday, but some 8 million will file for the automatic four-month extension the IRS offers anyone who bothers to apply.
Why do so many Americans procrastinate, especially when the federal government actually owes money back to 81 million of them? Last year, the federal government overcollected more than $106 billion from U.S. taxpayers --- an average of $1,332 each, which could have been invested or earned interest for the individuals to whom the money rightfully belonged.
Instead, it sat in federal coffers until taxpayers could file the necessary forms to get Uncle Sam to return their money.
Imagine how you'd feel if your phone company or credit-card company made you pay upfront, overcharged you by more than $1,000 a year and then made you spend 11 and a half hours filling out complicated forms so that you could get back the money it owed you.
Of course, that's exactly what the federal government does -- and the states follow suit -- by requiring employers to withhold income taxes from your paycheck. Yet most of us take the system for granted, never complaining or bothering to adjust our W-2s so that they accurately reflect what we owe.
Tax withholding is one of the biggest scams around, not only depriving individuals of the use of their own hard-earned money, but camouflaging their yearly tax burden, too. Until 1942, income tax was paid four times a year based on the earnings of the previous year.
As Nobel Prize economist Milton Friedman explains in his joint memoir with his wife, Rose, "Two Lucky People," this system "raised few problems so long as the income tax was fairly low and only a small fraction of the population was subject to the tax." But with the American entry into World War II, the federal government needed a huge infusion of revenue to pay for the war.
In 1939, fewer than 4 million taxable returns were filed. Four years later, Friedman reports, taxable returns had increased tenfold, producing 15 times more revenue. With taxes skyrocketing, the government could no longer be sure Americans would put enough aside to pay their taxes on a quarterly basis and "withholding" was born. The government sold the public on the idea by agreeing to "forgive" part of the previous year's tax liability in return for prepaying taxes in 1943.
But like most government programs, withholding didn't end once the original crisis had abated. In effect, withholding turned employers into tax collectors and left employees believing they were entitled only to their "take home pay."
I remember my own shock when I received my very first paycheck. Where was the salary I'd been promised? After the deductions for some mysterious thing called 'FICA,' and federal and state taxes were taken out, I was taking home barely more than the 75 cents an hour I'd earned babysitting in high school.
But like everyone else, I became more or less accustomed to prepaying my taxes and was thrilled any year the government beneficently decided to give me a refund.
That is until I started earning a substantial part of my income through speaking and writing, with no employer to deduct my taxes. Then I became one of those taxpayers who must make quarterly 'contributions' on my estimated tax liability each year. Believe me, writing checks directly to the IRS for the amount of taxes owed is a radicalizing experience. No longer hidden, the amount seems like exactly what it is: outrageous.
The average American now pays 35.2 percent of his entire income in taxes: federal, state and local. The federal tax burden takes up as large a share of the gross domestic product -- 20 percent -- as it did when American was fighting World War II. But as Wall Street Journal editorial writer Amity Shlaes points out in her new book, "The Greedy Handy: How Taxes Drive Americans Crazy and What to Do About It," withholding makes the onerous tax burden possible. "Confronted with the idea of sending $10,000 or $20,000 to the government all at once, some of us would surely revolt."
Abolish the IRS? It's not necessary --- just abolish withholding and the IRS
will fall. It's a revolutionary idea, the kind that led to the founding of
04/06/99: How to spend Equal Pay Day